Diageo targets businessmen to counteract Beijing austerity drive

International / 19 February 2014, 08:00am

Bottles of Shui Jing Fang, or Swellfun, liquor stand on a shelf in a store in Shanghai, China on 03 March 2010.

Shanghai - Diageo, the world’s biggest distiller, is targeting wealthy Chinese businessmen to boost sales at its local spirits unit as an austerity drive by President Xi Jinping dries up government orders.

Sichuan Swellfun, the Diageo unit that makes the white spirit called baijiu, would focus on selling more to walk-in customers and online buyers, Swellfun managing director James Rice said. The distiller also planned to expand its product line to attract retail consumers.

Xi’s crackdown on extravagant spending by government officials has hurt sales by domestic and foreign liquor makers, including Paris-based Pernod Ricard.

“Before Xi Jinping, anybody could sell baijiu because the consumption demand was huge,” Rice said on Friday. “Now, you have to be at the right price, you have to sell the right way and you have to go find your consumer.”

Before the crackdown, about half the industry’s sales of white spirits priced above 500 yuan (about R890 at current rate) went to the government, state-related enterprises and companies, Rice said. Overall, baijiu prices fell by half in the past year, he said.

An estimated 98 percent of China’s sales of spirits, which include vodka and whisky, were made up of baijiu in 2012, according to industry researcher Euromonitor International.

The company would also offer more products priced at more than 2 000 yuan this year as it catered to affluent customers.

To target more mass market buyers, it would also introduce cheaper products such as a 98 yuan white spirit under a different brand, he said.

An escalation in Xi’s frugality drive crimped high-end spending over the Chinese new year holiday, analysts at Bank of America Merrill Lynch wrote in a report earlier this month. High-end gift buying took a hit in the first four days of the period, according to the report, which cited the Ministry of Commerce.

Six of the 14 spirits makers listed in China are set to report losses or lower profit for last year, according to company forecasts. Swellfun might report a loss of at least 124 million yuan this year, the company said last month.

Pernod, Europe’s second-biggest distiller, cut its forecast for full-year global profit growth last week, citing declines in China. It said sales in China fell 18 percent in the first half.